Dassault Systemes Reports Strong First Quarter


Readers are cautioned that the supplemental non-GAAP information presented in this press release is subject to inherent limitations. It is not based on any comprehensive set of accounting rules or principles and should not be considered as a substitute for U.S. GAAP measurements. Also, our supplemental non-GAAP financial information may not be comparable to similarly titled non-GAAP measures used by other companies. Further specific limitations for individual non-GAAP measures are set forth below. To compensate for these limitations, the supplemental non-GAAP financial information should be read not in isolation, but only in conjunction with our consolidated financial statements prepared in accordance with U.S. GAAP.

In evaluating and communicating our results of operations, we supplement our financial results reported on a GAAP basis with additional non-GAAP financial data, including non-GAAP revenue, non-GAAP operating income, non-GAAP operating margin, non-GAAP net income and non-GAAP diluted earnings per share. As further explained below, the supplemental non-GAAP financial information excludes certain income statement elements: deferred revenue adjustments, amortization of certain technology related acquired intangibles (which arise from our acquisitions of companies and of intangible assets), stock-based compensation expense and one-time tax restructuring effects. For this reason, and subject to the limitations set forth above and below, we believe that the supplemental non-GAAP data provides a consistent basis for period-to-period comparisons which can improve investors' understanding of our financial performance.

Our management uses the supplemental non-GAAP financial information, together with our GAAP financial information, to evaluate our operating performance, to make operating decisions and to plan and set objectives for future periods. Compensation of our executives is based in part on the performance of our business measured with the supplemental non-GAAP financial information. We believe that the supplemental non-GAAP data also provides meaningful information to investors and financial analysts who use them for comparing our operating performance to our historical trends and to other companies in our industry, as well as for valuation purposes.

The supplemental non-GAAP financial information adjusts our GAAP financial information to exclude:

-- Deferred revenue adjustment of acquired companies: Under U.S. GAAP, deferred revenue of an acquired company must be adjusted by writing it down to account for the fair value of customer support obligations assumed under support contracts acquired through the acquisition. As a result, in the case of a typical one-year contract, our GAAP revenues for the one-year period subsequent to an acquisition do not reflect the full amount of revenue on assumed contracts that would have otherwise been recorded by the acquired entity.

In our supplemental non-GAAP financial information, we have excluded this write-down to the carrying value of the deferred revenue, and we reflect instead the full amount of such revenue. We believe that this non-GAAP measure of revenue is useful to investors and management because it reflects a level of revenue and operational results that corresponds to the combined business activities of DS and the acquired company. In addition, the non-GAAP financial information provides a consistent basis for comparing our future operating performance, when no further adjustments to deferred revenue are required, against recent results.

However, by excluding the deferred revenue adjustment, the supplemental non-GAAP financial information reflects the total revenue that would have been recorded by the acquired entity but may not reflect the total cost associated with generating the non-GAAP revenue.

-- Amortization of acquired intangibles: Under U.S. GAAP, the cost of acquired intangible assets, whether acquired through acquisitions of companies or of technology or other intangible assets must be recognized according to the assets' fair value and amortized over their useful life.

In our supplemental non-GAAP financial information, we have excluded the amortization expense related to acquired intangibles in order to provide a consistent basis for comparing our historical results. For technology and other intangible assets we develop internally, we typically expense costs in the period in which they are incurred. For example, because we typically incur most of our research and development costs prior to reaching technical feasibility, our research and development costs are normally expensed in the period in which they are incurred. By excluding the amortization expense related to acquired intangibles, the supplemental non-GAAP financial information provides a uniform approach for evaluating the development cost of all our technology, whether developed internally or acquired externally. As a result, we believe that the supplemental non-GAAP financial information offers investors a useful basis for comparing our historical results.

However, the acquired intangible assets whose amortization costs are excluded contributed to revenue earned during the period, and it may not have been possible to earn such revenue without such assets. In addition, the amortization of acquired intangibles is a recurring expense until their total cost has been amortized.

-- Stock-based compensation expense: Under U.S. GAAP, we are required to recognize in our income statement all share-based payments to employees, including grants of employee stock options, based on their fair values over the period that an employee provides service in exchange for the award. This requirement, which is set forth under SFAS 123(R), became effective for us as of January 1, 2006.

In our supplemental non-GAAP financial information, we have excluded this expense to help investors compare our 2006 financial information with financial information for periods prior to January 1, 2006, when stock-based compensation costs were not expensed. In addition, because financial analysts and investors were using a valuation model which did not take into account our stock-based compensation expense for prior periods, the exclusion of stock-based compensation expense in our supplemental non-GAAP financial information helps them ensure the consistency of their valuation metrics. Our management also considers this non-GAAP information when reviewing our operating performance, since stock-based compensation costs can fluctuate due to factors other than the level of our business activity or operating performance.

However, stock-based compensation is one component of employee compensation. By excluding stock-based compensation expense, the supplemental non-GAAP financial information does not reflect our full cost of attracting, motivating and retaining our personnel. Stock-based compensation expense is a recurring expense.

-- One-time tax restructuring effects (as applicable): Our U.S. GAAP financial statements reflect the impact of a tax restructuring effected during the third and fourth quarters of 2006 in the U.S.

In our supplemental non-GAAP financial information, we have excluded the one-time impact attributable to this tax restructuring because of its unusual nature in both qualitative and quantitative terms. We do not expect such tax effects to occur as part of our normal business on a regular basis. As a result, we believe that by excluding the one-time effects of the tax restructuring, our supplemental non-GAAP financial information helps investors understand the current trends in our operating performance. We also believe that the exclusion of the one-time tax restructuring effects facilitates a comparison of our effective rate of income tax between different periods.

However, the one-time tax restructuring effects are a component of our income tax expense for the period during which the restructuring took place. By excluding these effects, the supplemental non-GAAP financial information overstates our income tax expense for the relevant period.

The following tables set forth our supplemental non-GAAP revenue, non-GAAP operating income, non-GAAP operating margin, non-GAAP net income and non-GAAP diluted earnings per share, which exclude the effect of adjusting the carrying value of acquired companies' deferred revenue, the expenses for the amortization of acquired intangible assets and stock-based compensation expense (as explained above). The tables also set forth the most comparable GAAP financial measure and a reconciliation of the GAAP and non-GAAP information.
                          DASSAULT SYSTEMES
             SUPPLEMENTAL NON-GAAP FINANCIAL INFORMATION
                  US GAAP - NON-GAAP RECONCILIATION
             (in millions of Euro, except per share data)

----------------------------------------------------------------------
                        Three  months  ended  March  31,                    Variation
                            --------------------------------------------------------
                            2007    Adjustment  2007  2006    Adjustment    2006              Non-
                              GAAP          (1)        Non-    GAAP          (1)      Non-GAAP  GAAP  GAAP
                                                              GAAP                                                              (2)
----------------------------------------------------------------------
Total  Revenue  EUR                          EUR      EUR                          EUR
                              290.9            3.8    294.7  252.1            3.9    256.0        15%    15%

Total  Revenue
  breakdown  by
  activity
Software
  revenue            245.8              3.8  249.6  213.1              3.9        217.0    15%    15%
Services  and
  other  revenue  45.1                                    39.0                                          16%

Total  Revenue
  breakdown  by
  segment
PLM  revenue      235.0              2.3  237.3  200.9              2.8        203.7    17%    16%
  of  which
    ENOVIA
    revenue            57.4              2.3    59.7    26.3                                        118%  127%
  Mainstream  3D
    revenue            55.9              1.5    57.4    51.2              1.1          52.3      9%    10%

Total  Revenue
  breakdown  by
  geography
Americas              96.1              1.9    98.0    75.8              1.4          77.2    27%    27%
Europe                122.8              1.4  124.2  111.6              1.6        113.2    10%    10%
Asia                      72.0              0.5    72.5    64.7              0.9          65.6    11%    11%
----------------------------------------------------------------------

Total
  Operating        EUR                          EUR      EUR                          EUR
  Expenses            244.8        (15.2)  229.6  204.9          (9.4)  195.5        19%    17%
Stock-based
  compensation
  expense                4.3            (4.3)        -      2.2            (2.2)              -  n/a    n/a
Amortization
  of  acquired
  intangibles      10.9          (10.9)        -      7.2            (7.2)              -  n/a    n/a
----------------------------------------------------------------------

Operating          EUR                          EUR      EUR
  Income                46.1            19.0    65.1    47.2            13.3  EUR    60.5(2%)      8%
Operating
  Margin                15.8%                      22.1%  18.7%                            23.6%
Income  before
  Income  Taxes    49.1            19.0    68.1    50.3            13.3          63.6  (2%)      7%
Income  tax
  expense            (16.2)          (5.6)(21.8)(17.5)          (3.9)      (21.4)n/a    n/a
Income  tax
  effect  of
  adjustments
  above                    5.6            (5.6)        -      3.9            (3.9)              -  n/a    n/a
Minority
  interest              0.0                                    (1.5)                                      n/a
Net  Income        EUR                          EUR      EUR
                              32.9            13.4    46.3    31.3              9.4  EUR    40.7    5%    14%
Diluted  Net
  Income  Per      EUR                          EUR      EUR
  Share  (3)          0.28            0.11    0.39    0.26            0.08  EUR    0.34    8%    15%
----------------------------------------------------------------------
 


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